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SAS 99 defines fraud as an intentional act that results in a material misstatement in financial statements. There are two types of fraud considered: misstatements arising from fraudulent financial reporting (e.g. falsification of accounting records) and misstatements arising from misappropriation of assets (e.g. theft of assets or fraudulent expenditures).
In terms of the Conceptual Framework (see "materiality in accounting" above), materiality also has a qualitative aspect. This means that, even if a misstatement is not material in "Dollar" (or other denomination) terms, it may still be material because of its nature. An example is if a disclosure is omitted from the financial statements.
[3] [4] Financial statement assertions provide a framework to assess the risk of material misstatement in each significant account balance or class of transactions. [5] Both United States and International auditing standards include guidance related to financial statement assertions, although the specific assertions differ.
An auditor's objective is to determine whether financial statements are presented fairly, in all material respects, and are free of material misstatement. Although the process of producing an assessment may involve an audit by an independent professional, its purpose is to provide a measurement rather than to express an opinion about the ...
Some entity-level controls have an indirect effect on the chances of detecting or preventing a misstatement on a timely basis. They do not directly relate to risks at the financial statement assertion level. Affect control selection, and the nature, timing, and extent of the procedures performed. Monitoring
Inherent risk is one of two components of the risk of material misstatement i.e. the risk that the financial statements are materiality misstated prior to audit. The other component is control risk. [1] Audit risk is a function of the risk of material misstatement and detection risk. [1]
This consists of sufficiency and appropriateness. Audit evidence is sufficient when there is an acceptable amount of evidence found. This changes based on the risk of material misstatement and the quality of evidence that was found. The higher the risk that the financial statements are materially misstated, the more evidence an auditor should ...
Example, transactions involving exchange of cash may have higher IR than transactions involving settlement by cheques. The term inherent risk may have other definitions in other contexts.; [1] Control risk (CR), the risk that a misstatement may not be prevented or detected and corrected due to weakness in the entity's internal control mechanism.